The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry

Decentralized peer-to-peer markets, collectively known as the sharing economy, have emerged as alternative suppliers of goods and services traditionally provided by long-established industries. A central question regards the... [ view full abstract ]

Decentralized peer-to-peer markets, collectively known as the sharing economy, have emerged as alternative suppliers of goods and services traditionally provided by long-established industries. A central question regards the impact of these sharing economy platforms: will they materialize as viable mainstream alternatives to traditional providers, or will they languish as niche markets? We study the case of Airbnb, specifically analyzing Airbnb's entry into the short-term accommodation market in Texas and its impact on the incumbent hotel industry. We first explore Airbnb's impact on hotel room revenue, by using a difference-in-differences empirical strategy that exploits the significant spatiotemporal variation in the patterns of Airbnb adoption across city-level markets. We estimate that in Austin, where Airbnb supply is highest, the causal impact on hotel revenue is in the 8-10% range; moreover, the impact is non-uniformly distributed, with lower-priced hotels and those hotels not catering to business travelers being the most affected. We then examine seasonal effects, and provide evidence that the flexibility of Airbnb supply impacts hotels disproportionately during high season, limiting their pricing power. At all times of year, we find that affected hotels have responded through less aggressive pricing, an impact that benefits all consumers, not just participants in the sharing economy. Our work provides empirical evidence that the sharing economy is making inroads by successfully competing with, differentiating from, and acquiring market share from incumbent firms.